It’s a common enough misconception out there that when we slap taxes, duties and tariffs upon imports then it’s those dastardly foreigners who lose out. Donald Trump and Peter Navarro, his adviser, definitely believe this. The European Union seems to as well for their reaction to Trump’s American import tariffs on steel and aluminium is to threaten to make European consumers poorer by taxing American goods.
The entire idea is of course an error. Any imposts – meaning tax, duty, tariff – upon an import is clearly and obviously paid by the people who buy the goods, the consumers in the country imposing the taxation. This is not one of those concepts to be argued about, it simply is. As this example from India shows:
German luxury car maker Audi on Friday said it will increase prices of its vehicles by up to Rs 900,000 from April 1 to pass on the impact of increased customs duty in the Budget.
The price across the entire model range will be increased by up to five per cent owing to the hike in the customs duty announced in the Union Budget, Audi India said in a statement.
And there we have it. Put up import duties and the goods become more expensive. So, who is now paying that tax? The people who buy the imported item, obviously, it ain’t Johnny Foreigner now, is it?
Except that’s not all. For every Indian consumer of cars – including those who don’t buy an Audi nor even think of doing so – is also paying this tax. That barrier to imports also means that domestic manufacturers face less price competition and we know what happens then. Their prices rise – or at least don’t fall as far as they would in the presence of more competition. This is rather the point of the tariffs in the first place, to raise the price of cars within India by protecting domestic manufacturers from that foreign competition.
All Indians, at least all those in the market for a car, are made poorer by these tariffs. Just as all Americans are going to be made poorer by Trump’s steel and aluminium tariffs, just as all Europeans will be by any EU reaction to them.
Tariffs impoverish the population supposedly shielded by them. We really shouldn’t be having them therefore, should we?